VMware, Inc. (VMW) Presents at UBS Global TMT Conference - (Transcript)
VMware, Inc. (NYSE:VMW) UBS Global TMT Conference December 7, 2020 1:00 PM ET
Company Participants
Patrick Gelsinger - CEO & Director
Conference Call Participants
Karl Keirstead - UBS Investment Bank
Karl Keirstead
Well, hello, everybody, and welcome to the virtual version of the 2020 UBS TMT Conference. So with us for this session is the CEO, Pat Gelsinger, of VMware; along with Paul Ziots, the Head of Investor Relations.
In terms of format, we'll go for about 40 minutes. And for all of you listening with questions, feel free to e-mail me directly at karl.keirstead@ubs.com.
I'll start with a forward-looking statement. Statements made in these discussions, which are not statements of historical fact, are forward-looking statements based upon current expectations. Actual results could differ materially from those projected due to a number of factors, including those referenced in VMware's most recent SEC filings on Forms 10-Q, 10-K and 8-K.
So with that, Pat and Paul, thanks for joining. Apologies that this has transitioned to audio only. Pat and Paul, I've basically been dressed in T-shirt and shorts for 9 months, and I got all dressed up for this. I'm sorry you can't see that.
Patrick Gelsinger
Wow. I'm sure disappointed. Always a pleasure to join you, Karl. Thank you for the time.
Question-and-Answer Session
Q - Karl Keirstead
Thank you very much. Great. So maybe, Pat, we'll start with a couple of higher-level questions for you. I guess, at the highest level, just talking about VMware's resiliency, you've been very candid as -- had a saying about the on-premise project delays you've experienced in the last couple of quarters. But I think it deserves highlighting that your current guidance for this year of about 8% growth is, frankly, not wildly off from the low double-digit growth that VMware was posting in the past.
So I just wanted to ask you for your reflections on that. Is this a reflection of the stickiness of the core vSphere suite, perhaps a mix shift to some of these faster-growing parts of the portfolio? Because net, it's not that far off actually from where you started despite the broader demand challenges?
Patrick Gelsinger
Yes. Great question, Karl. And I do think there is just a resilience to the business, right? People can say, "Hey, we're going to migrate to the cloud in 12 months? Yes, right," right? I mean I just -- these are very, very stable, mission-critical workloads. And that resilience and the implications of cloud migrations have been highly overstated on how fast they can go as people move to the future.
And now with our multi-cloud hybrid cloud strategy, as your question suggests, hey, we're on the other side of that as well. And even as they move from on-prem VMware, they're moving to on-prem VMware Cloud. And we're picking them up, and we're seeing that growth, again, another great quarter for our Amazon offering, our preferred public cloud partner but also our VCPP partners, very steady growth there to the VMware footprint on those second-tier cloud partners and starting to see the emergence of Azure and Google and Alibaba and Oracle. So it really has this true multi-cloud hybrid cloud offering at scale.
Let's say the ongoing renewal rates of our on-prem business, churn rates in our business, very healthy. And we run the most critical infrastructure for our customers, digital transformation on earth. So I'm just saying it works, it runs and it's easy to talk about migrating to other environments when people get down to doing -- it's sort of like, wow, this is a very, very compelling value proposition. So overall, I do think the stability of the business is very healthy. We're quite excited about the accelerating growth rate of our subscription and SaaS businesses.
Hey, we would have loved to see more growth in the on-prem businesses in Q2 and Q3. But like the industry, we saw that show up much more so in the acceleration of our subscription and SaaS businesses. And as we've looked forward to the next couple of years, we are leaning into the SaaS mile, as we call it, which we do believe results in a very great value proposition for the long-term value of our assets and our customer relationships.
Karl Keirstead
And Pat, maybe I'll just dig a little further on this notion that maybe the pace at which large organizations, your large customers are migrating to the cloud might be a little bit overstated. When you say that, it makes me think a little bit. If you recall back in 2016 or so, when many investors were calling for this massive and immediate cloud migration. And I feel like you and a few analysts were issuing a bit of a -- hey, wait a sec, this is going to happen a little bit more slowly. And in fact, VMware ended up having a terrific 2017, 2018.
I'm wondering whether you see analogies to that, that almost sentiment shift in terms of on-prem or cloud. Or maybe this does feel a little bit different post COVID, where even you would concede that the interest in migrating to the cloud has, in fact, picked up and hence, some of that enthusiasm is justified.
Patrick Gelsinger
Yes. And I will say, "Hey, I think this is different," right? A global pandemic changes everything. So anybody who says they know what the future is, is wrong. Anybody who says that didn't them is just wrong. That said, the underlying reasons that people will have an on-premise infrastructure, I called it the 3 laws: the laws of economics, right, the laws of the land and the laws of physics. Those 3 laws are as true now as when we first started this conversation 6 years ago.
Laws of economics. We now have customers at scale that are consistently saying, "Hey, my on-prem per workload costs are 50% cheaper than if I do that in the cloud." If you're an at scale enterprise, Karl, do you care at a 50% cost increase per workload? That matters. The economics of these scales matters greatly.
And a hybrid cloud is even cheaper than that because you get some of the best of the ephemeral and scale characteristics of public cloud combined, right, with highly efficient private cloud. We can do even better than 50% as we're seeing now with at-scale customers. Economics matter, right?
The laws of physics. As we see more edge, 5G emerge, right, I simply can't do, right, a 50- or 100-millisecond round trip to a consolidated cloud. I have to be doing that at the edge. We would say 5G and edge will have a bit of a resurgence effect of how much central versus distributive occurred.
And then finally is regulated segments where health care, public sector, telco, they will -- financial services, they will always have a bias toward on-prem for some of the different regulatory, privacy, customer data, geo, regional issues. So those would be the areas that we think there's always going to be this balanced world.
And thus, we are positioned in VMware to sit firmly in the middle of a multi-cloud, hybrid cloud world. And that last phrase, multi-cloud is super important as well because now customers are at scale with their Amazon or Azure footprints. They say, "Boy, I really like the idea of being able to have a multi-cloud flexibility through a common operational and controlled plane." And VMware is stepping into that in a big way. And obviously, we'll touch on our Tanzu portfolio, doing that not just for today, but for tomorrow's modern containerized microservice applications as well.
Karl Keirstead
Got it. And Pat, maybe that's a nice segue on the subject of cloud. One of the highlights of your recent October quarter was the SaaS subscription growth of 44%. Zane disclosed a cloud ARR of $1 billion. There's a number of subscription businesses that make up that number. But I think 2 pretty important ones are VCPP as well as VMware on AWS. Can you talk a little bit qualitatively about some of the traction that you're seeing in those businesses given that, as workloads do move to the cloud, that part of the VMware story feels like it's, if anything, going to become more central?
Patrick Gelsinger
Yes. And we do see it, it's becoming more central. And in particular, the BMC, Amazon offering, has just been great. And Amazon as a partner, they are showing up the value proposition that's now very well-established with reference customers across all BOs, across all segments and verticals. And the Amazon resell relationship is working superbly for both companies.
And we would say coming off of the first week of re:Invent, this has clearly highlighted the relationship with Amazon. It's just working. And now it also is creating a little bit of -- the Azure guys, "I need that, too." So we're seeing them starting to show up as well.
And finally, as you mentioned, the VCPP relationships have been a very steady and now a very substantive piece of that $1 billion ARR that we mentioned. And this is all of the second-tier players, Swisscom and Rackspace and the regional players like OVH and T-Systems. All of these have seen very steady, unique market relationships, and that presented just this foundational element of our cloud offerings.
And I don't see any change in that going forward as we now build out the rest of the hyperscale relationships. Oracle, Alibaba, IBM continues to be a great performer for us. But we'd, again, say, Amazon is the lead horse, and that one in particular has, as we mentioned in the last earning calls, greater than 100% growth rate yet again.
Karl Keirstead
Right. And Pat, what can VMware do to ensure the continued growth, the durability of that Amazon relationship and that revenue stream? Because I suppose there are some customers that would use your offering as a bit of a bridge and ultimately go native, but I think it's in your interest, obviously, to ensure that, that VMware stack, if you'd like, inside AWS data centers is quite sticky. So what can you do to increase the value prop of running on VMware and AWS as opposed to those customers transitioning to native AWS?
Patrick Gelsinger
Yes. And there's 3 or 4 different aspects to that, that we would highlight. One is, as you're running your VMware Cloud workload on AWS, first would be, why would you change it? It's already cheaper when you're running it there in most cases. So why would I go to a more expensive cloud-native environment? You'd have to have a pretty compelling value proposition to do that. So we take first, it's already more cost effective. It's already running. The cost of migration is high when you move from a VMware environment to a native cloud environment. So there's a pretty big speed bump for people to do that.
Also, when you're running there, you still have full access to all of the Amazon native services. So I still get to go SageMaker, right, or some of the new offerings that just rolled out. The -- some of the database services, they're fully accessible in that development environment as well. So I haven't given anything up. And I clearly have cost resilience. It's more resilient by the nature of the underlying VMware environment.
Also, I have more multi-cloud flexibility. Oh, that workload, when it's running there, it's hard to take a native Amazon workload to native Azure. It's easy to take a native VMware Cloud on Amazon to an AVS, Azure VMware offering, I have more multi-cloud flexibility and I have private cloud flexibility. I want to bring that one back on-premise. Or when I run that one in Germany, it has to be on-premise because of their laws versus when I run it in the U.S., I can have it on a public cloud provider as well. So I have much more flexibility.
Also, we're building more value proposition into the service. I can DR more easily that way. I had more of the high availability characteristics and we're building more of those capabilities. So if I'm running natively, I'm running 2 or 3, 9s, and I have to build resilience at the app. When I run in VMware Cloud, I've built the resilience into the infrastructure. That's pretty powerful.
But the final thing is we have to make it a better environment for modern apps. And that's where the Tanzu strategy becomes super important, Karl. That's where people have to say, "Oh, if it's such a -- if my developers insist on going to the native public cloud environment, then it's always hard to pull them back. There's friction there." If the developers say, "Oh, that one works pretty fine to be my modern app development," and you give me all of those value propositions that we just described, multi-cloud, cost, high availability, private cloud, and it's easy for my developers, win.
And that's where we have to get to with the Tanzu portfolio. We announced a bunch of those things at VMworld this year. And as that momentum increases, I think we have a very, very elegant complete value proposition for customers to not view it as a way station to the future but view it as the true multi-cloud hybrid cloud future that they need for their business.
Karl Keirstead
Got it. That's a pretty thorough answer, and I'd love to hit up on Tanzu in a moment. But maybe while we're on the subject of the SaaS or subscription component of VMware, you and Zane, I think, have spent a little bit more time on the last couple of earnings calls and at various investor conferences talking about that model transition. It now represents, I think, 24% of the mix.
I'm wondering, Pat, if you can just describe qualitatively why that's happening, whether it's something that you're encouraging, whether your customers are pushing for it? And just broadly, if you could describe the pace at which VMware would like to make that transition this coming year and the following years. Obviously, that can have a significant effect on your financials to the extent that you move quickly, rip the bandage off versus a more gradual pace.
So I think as we think about your financials over the next several years, the pace at which you're looking to make this transition is a relevant inputs I would love to ask you.
Patrick Gelsinger
Yes. And overall, we always start by saying, what's the market? What do customers want? And at the highest level, customers want a higher proportion of subscription, SaaS and cloud-delivered than they have today. So it's a market trend, and we are delivering against that sub-market trend. And our business is a bit too biased to on-prem and license. So we're leaning into that harder.
But we also say at the end of the day, our job is to meet the customers' needs. And some segments like utilities, they say they want to put them into a rate card to capitalize it. They never want subscription and SaaS, right, in their business model and some of the topics that we've already touched on for speed of light and edge and regulation. We always see a balance between those 2 worlds.
But all that said, we believe there is more growth, a compellingness on the part of customers to see more subscription and Saas, a greater alignment of their technology providers to their business outcomes and their business success. And that's why we're leaning on that side of the portfolio a bit more aggressively. With that, we said, over the next year, we expect to see that growing faster than our on-prem and traditional businesses.
Second, we've said that we're going to have all of our major product offerings available in subscription and SaaS form over the next year. And we're going to finally present our customers more flexible purchasing options. Almost every time you talk to a customer, they are wrong about their cloud migration strategies and journeys. Someone will say, "Hey, we're just going to lift and shift and refactor into the public cloud? Yes, right. That is way harder, and we now have many, many customers that bang their heads on that strategy.
Others that says, "Hey, we're going to migrate to the cloud in 2 years," 4 years later, they still have small percentages on the cloud. So there's a lot of -- how can we give them more flexibility on that journey, and we'll be giving more flexible purchasing mechanisms that they can say, "I'm betting on VMware." I'm just not sure how that migration strategy is going to work out over the next 2, 3, 4, 5 years.
So that combination of meeting the market where it is but leaning in more aggressively on that side of the portfolio, giving the full portfolio of our products and then giving our customers more flexibility. Those would be the big things that you see from us as we go through next year.
Karl Keirstead
So Pat, the notion of putting the full portfolio into a subscription format, that would obviously include your core vSphere business, which historically has always had a more traditional license maintenance model. There are ways that you could actually take that core part of VMware and offer it on a more ratable basis as well.
Patrick Gelsinger
Yes. And as we're thinking about that, Karl, really as we'd say, it's across the portfolio. So we're looking at every element of the portfolio and saying, how does VMware Cloud, how does VMware Cloud Foundation, how does vSphere, how do our Workspace ONE as we're leaning into that. We just released in Q4 the VMware -- or the realized portfolio as a subscription.
And with that, it isn't just about, I'll say, having a subscription version of the product available, but it's also how do we give more value to those offerings as well and things like improved life cycle management, patched, automated cloud operation. So it's bringing value into those portfolios that it isn't just, "Oh, I could get it ratable versus on-prem. I have a value proposition commensurate with a cloud-delivered solution as well." So we're looking at doing that across the portfolio. And as we get into next year, you'll see us making incremental announcements consistent with the framework that I just laid out.
Karl Keirstead
Got it. So Pat, you've mentioned in the past that if there's 2 battles that VMware needs to win, it's in the cloud, and we just touched a little bit on that. And the second one is winning the hearts and minds of developers, and that gets to the Tanzu offering.
So maybe on the subject of these broader end goals, we talk a little bit about Tanzu. So I'd just love to ask you about your focus on modern applications, how you're bringing together virtual machines and containers, how that can impact VMware and why it's super important to win with Tanzu and developers. High level, why is that so critical for VMware?
Patrick Gelsinger
Yes. It's starting at the highest level. It's the developer line of business increasingly is setting the decisions or influencing the decisions for what infrastructure and where they want them. So with that increasing role that they play, if we're not influential there, we're receiving the decisions, we're not influencing the decision. So it's really important for us to be part of that conversation.
But there also is this aspect of digital transformation. It is occurring largely through the modern application experiences. That's where you're seeing an extraordinary acceleration in how customers present themselves to their customers, how they embody their value propositions. So participating in that is just an overall accelerant to digital transformation and it influences the rest of the infra portfolio. And that's exactly why Tanzu, right -- as you've heard me talk about it this year, our number one priority is to bring those pieces together and be in those conversations, be delivering the tools that our customers need for their modern application environment.
But we're not just saying it's the modern app environment, but it's the modern multi-cloud, hybrid cloud application environment that they're building too for the future. And that's exactly what Tanzu is all about. We've brought together the pivotal Heptio and VMware assets into a singular portfolio that now is multi-cloud, right, you can run private cloud as well as we've done the releases now of that for Amazon, Azure and Google. So it's truly multi-cloud.
It also, in the on-premise world, it is magically integrated into VSphere. So now you don't have to choose between VM and containers. If you have to rebuild an application, that's a big hurdle, right? And if it runs perfectly well on a modern infrastructure in VM's, particularly bigger stateful applications, why would you refactor it? Maybe years until you get that done and now you're refactoring an application as opposed to building new applications.
Wow, if we can accelerate their cloud journey, not just multi-cloud, hybrid cloud, VMs and containers, that's like a magic button for the enterprise that they are able to bring modern application environments, bridge between infra and development teams between line of business and operations, be able to expedite the use of modern tools with existing applications as well as their new application environments and give them multi-cloud freedom, that's a pretty compelling picture.
And that's what we're out to paint with Tanzu, and VMware Cloud is creating that ability for their fast forward to the future. And that message is really resonating. As you've seen in the last couple of quarters, we've exceeded our business plan. The two highlights of the last quarter were our VMware Cloud offering and the Tanzu offering. Those were the -- those that were most ahead of their business cases despite all the tumults of the COVID period. So if I had two areas that I was happiest about, those would be the two that I want, and that's exactly what I got.
Karl Keirstead
Got it. So maybe a couple of questions on this, just given how important it is, Pat. So it sounds to me like Tanzu and its success could be an accelerant to VMware's relevancy and success in a cloud and multi-cloud world. It doesn't sound like you're positioning it as a measure to ensure that your core vSphere business is relevant.
And it makes me think back to a bold bear argument that Wall Street had a couple of years back as to whether containers eventually obviate the need for virtual machines and replace them. What's your current view on that relationship between VMs and containers, whether they, one, replaces the other; or whether they coexist, which was at least with me, the argument I was making a couple of years back?
Patrick Gelsinger
Yes. And clearly, I mean, we walk into some customers and they say, "Hey, why do I want VMs? I'm just going to go to containers." And about the time they finished the last syllable of that sentence is the moment that I go berserk, right? It's like, "What are you talking about," right? You're going to go rebuild all -- an infrastructure just so that you're not running VMs when it's all great. It's like this is like the OpenStack game played all over again and it was utter failure. Why would you do that, right?
If we've made it so easy for you to have both, right, VMs and containers, right, why would you rebuild an infrastructure? Why would you fork your operations teams? Why would you create islands that aren't operationally secure or managed at scale, right? It simply is a bad investment and you want to be putting your investments in the new modern facing application.
The other thing that you'll see us do in the coming year is we are going to be super aggressive about saying the Tanzu versions bundled with vSphere, right? And we're just going to, as I would say, pave the earth with that Tanzu, vSphere, Kubernetes offering. And with that, it's just become -- this is standard. It's here. It's available. It works. Why would you do anything different, right?
All of those operational skills that you need to learn for a new environment, done. Everybody can run vSphere. You are now Kubernetes-certified as a vSphere operator. That unleashes millions of operations people to simply deliver it for their modern dev environments.
And of course, as we bring those together, VMs and containers in a common management, you get all the security benefits. You get all of the networking benefits. It's the easy button to be able to satisfy the bridge between a containerized world and the infrastructure it runs on. There's a bunch of fallacies, Karl, about -- "Hey, when I microservice my app, things got easy." It hasn't gotten easy because I might have had a nice 3-tier application, 8 or 10 network ports connecting those together, well firewalled. When I microservice that 3-tier application, I might have 10, 50 or 100 microservices with all of the complex relationships between those services and the operational model, right, of their interdependencies. It is not easy. It may be better for many, many characteristics, but it hasn't gotten easy.
And in that, I think there's a panacea of tomorrow that isn't born in reality. And if we truly solve those operational issues bridge between networking of today and tomorrow, VMs and containers, multi-cloud and hybrid cloud and we're starting to see customer resonance to that, yes, we feel good about the strategy, and it's right what the real pain points of customers will be, not some false panaceas, right, but the true operational requirements of enterprise customers.
Karl Keirstead
Well, by describing the benefits of bundling Tanzu with vSphere, you may have answered my next question, which is that this Kubernetes container management and development space is not wide open. There are a couple of alternatives that developers and CTOs can turn to. It can be the Amazon or Google, native Kubernetes services, it could be IBM, Red Hat's OpenShift platform. So maybe you could summarize relative to alternative avenues why a CTO and the developer should choose VMware, Pat.
Patrick Gelsinger
Yes, it really boils down to the fact that we are multi-cloud, hybrid cloud, vSphere integrated. Multi-cloud, if you pick Arc, Anthos, AKS, EKS, et cetera, you've largely bound yourself to a cloud environment. We are decidedly multi-cloud and we already have all of the multi-cloud relationships, all of those partners and things. So we're simply scaling on top of that great multi-cloud relationship, so multi-cloud.
Hybrid cloud. We're on-premise and in the cloud, right? And nobody is better positioned to bridge between those 2 worlds. And no CIO that I go to today says that he expects to be 100% public cloud if they're of any scale, right? It's going to be a hybrid cloud world of some balance of what they do on-prem and in the cloud. So we are, right, highly differentiated with a unique hybrid cloud position.
And then being fully vSphere integrated, right, we solved the VM and containers. We've solved the operational gaps, skills issues that no one else can. And obviously, with -- on top of those three, hey, we will be better. We're running fast with new capabilities like with pivotal, many of their capabilities have yet to be replicated by any in the industry.
The Spring community, by far, the largest developer community for Java and enterprise Java on the planet, so we're bringing these assets to bear to really be seen as the development platform of choice.
Karl Keirstead
Excellent. Well, I think that covers the essentials of Tanzu. So if you don't mind, I'd love to switch to a couple of the other opportunities that could unfold for VMware in the next couple of years. Maybe we'll start with security and broadly speaking, Pat, your intrinsic security message.
And I'd love to hone a little bit in on Carbon Black and how you're making out transitioning Carbon Black upstream into that Fortune 500 installed base that VMware enjoys. And I was listening to you recently and you were drawing an analogy to AirWatch versus MobileIron. I think for the benefit of those listening that it might be worth repeating that analogy and that it might be helpful to understand how you're thinking about the Carbon Black trajectory.
Patrick Gelsinger
Yes. Thanks, Karl. We acquired AirWatch about 7 years ago, right? It was really -- and we looked at both and we analyzed AirWatch versus MobileIron and we picked AirWatch. And in some ways, we picked the wrong one because MobileIron, it's a Silicon Valley company, it was more enterprise oriented, but we love the scrappy aggressiveness of the AirWatch team, but they were more commercially oriented, more customers, more breadth of reach. Carbon Black was very similar.
So the early days of AirWatch, a lot of it was getting that enterprise greatness, getting the enterprise sales motion in place. And that's exactly what we're doing with Carbon Black. It's going through those same kind of maturation considerations. And Crowd has done a good job, a bit better than I probably would have expected them to do, so congrats to them for that motion as well.
But here we are seven years later and nobody cares about MobileIron, right? We have defined the category and our positioning of mobility and desktop, multi-device, has just defined that mobile category. Well, that's exactly what we're going to do with Carbon Black. We're going to redefine the category with our intrinsic security strategy. We're integrating it deeply with Workspace ONE. We're building the bridges with NSX.
But the killer one is, in my view, is Carbon Black workload, right, where we're integrating it directly into vSphere with an agentless solution, something nobody else can do in the industry. You have agents fall. This is the anti-agents fall because literally, there are no agents for attackers to attack, for applications to add, for administrators to administrate. It really is a spectacular solution and really delivers on that intrinsic security message. We are out to change security. It's just become one of these things.
I'd say at the broadest level, when we talk about intrinsic security, it is like our CISO customers, it's not like they need vitamins. It's not like they need painkillers. They need surgery, right? There are so much complexity and agent sprawl and point tools that can't possibly be successful under today's model of security. They need a security platform that is highly operational, integrated. And that's exactly what zero trust and intrinsic security is about.
So we've got a lot of work to do with Carbon Black. But I'll tell you, when we lay the strategy out to CISOs and CIOs, it's like an evangelistic moment. Hallelujah, this is what I need, and we're pretty excited to be stepping into that.
Karl Keirstead
That's good. I'll be looking forward to seeing that progress unfold. Pat, I'd also love to talk to you about another one of the growth vectors you're excited about and have been for a while, and that's the 5G opportunity. It's been creating some investor interest for a while. But I don't -- I think you'd probably agree, not a needle mover in terms of VMware's financials yet.
I just wanted to press you on when you think it might be. When will enterprises really earnestly begin a network infrastructure upgrade to the point that, that might start pulling up some of the elements of the VMware suite that could have a financial impact? Are we still kind of a year or 2, 3 away from that, Pat? Maybe your latest thinking on the 5G boost would be helpful for everybody listening.
Patrick Gelsinger
Yes. And let's lay out what I think is the 5G deployment time line and...
Karl Keirstead
That would be helpful.
Patrick Gelsinger
That will help answer the question. The last 2 years have largely been tire kicking, which, if you're a service provider -- hey, you'll set up a little bit of network capacity. You do it in a few regions, et cetera. But the bulk, the vast majority of calls and data are running over your 4G and LTE networks. But you need the marketing logo and you need some hardening of the offering in the marketplace.
That's what we've done over the last couple of years or the service providers have done. And we've won some of the marquee industry proof points like the DISH deal, like Vodafone where people have just bet on VMware at scale, right? So we're quite excited that we've really gotten some of those early use cases and our business is growing nicely.
We're now entering the second phase of 5G, which is now people are building in earnest, right, where they're saying, okay, phones are starting to show up. Use cases are starting to materialize. And we have the geopolitical benefit or tailwind of move off of China and Huawei, right, which is driving a bit of acceleration for people building out 5G. And I think this phase is a couple more years in front of us. And we're really just starting to see that second phase of deployment. So for us, we see this as a period of acceleration of that early telco business for us, and we are starting to see that.
If you recall from our last earnings call, we talked about Singtel, Rogers, NTT and the NTT win. They're one of the biggest 5 service providers in the planet. So we're starting to see these big deals materialize. So we're excited about that. But that's going to be sort of the next 2 to 3 years. The next phase will be the enterprise 5G phase. And in that third phase of 5G deployment is really where your question was sort of pointing to. And that third phase of 5G, you will see all markets moving to 5G. Second-tier markets, regional deployments, 5G becomes more economical than 4G and LTE. So you'll get a third phase of broad deployment.
But excitedly, you'll start to see enterprise 5G emerge where it becomes private networks, smart city deployment, smart factories, and that's where this move, as you might have heard me describe, where you'll start to see WiFi replacements, where you say, "5G? Would I ever run my factory on WiFi? I don't think so. Would I run it on enterprise 5G? Yes," right, and you're going to start to see this explosion of edge and on-prem, private networks, campus networks, et cetera. And that's when 5G becomes more enterprise like versus service provider like as it is today. And that's where I think our strengths in this category will even be further exemplified.
And for that Karl, the partnerships that we've announced with Intel and Qualcomm, right, those reference platforms, the recent announcement with Samsung and on the spectrum of traditional telco providers, Huawei is sort of at one end; Ericsson, the closest; the Nokia, the next; well, Samsung is number four, they're more aligned with our strategic disruption than others. So we're quite excited about that partnership that we just announced a couple of weeks ago as well. So overall, we have a good 4, 5, 6 years in front of us yet as we finish these next two phases of the 5G deployment. Overall, this is industry shaping for the long term.
Karl Keirstead
Got it. And Pat, that should -- in terms of parts of your portfolio that get a lift as that enterprise 5G opportunity take hold, I would imagine that's positive for NSX. What other big parts of the VMware suite would get a lift from that?
Patrick Gelsinger
Yes. And what we have done is, essentially, we've lived through -- we've heavily leveraged core vSphere, NSX and vSAN, right, and this is the core offering for telco cloud, as we've called it. And then we've built and acquired a few assets on top of that foundation, right, orchestration, automation, our Nyansa acquisitions, Uhana, Smart.
So we have some unique things that are specifically telco oriented, but the foundations of our core compute network storage form that foundational element. And most of that's on-premise. Most of that will be license-based as well. So that's sort of -- if we go back to the very beginning of our conversation, Karl, that sort of reinforces this nice balance and the stickiness of our business.
When Vodafone puts us into their core network now running well over 50% of every customer call that they do on their global network and growing, how long do you think they're going to have us in the network? A really long time. These are highly sticky, mission-critical relationships. So we feel quite good about that. And it does become a nice balance to the private versus public and the subscription aspect for our business.
Karl Keirstead
Got it. Pat, I'll finish with just one last question around your view about what the slope of the broader recovery in IT spending looks like. That's obviously very relevant given that one of the reasons the growth has decel-ed a little bit are these hung up on-premise projects. So obviously, everybody would love a view as to your prognosis as to when some of those deals might get funded and move forward. I'm guessing, given the state of the world, that this is looking a little bit more like a second half fiscal '22 phenomenon rather than next quarter. But perhaps things are accelerating a little bit more than I'm thinking. So maybe a good opportunity to ask for your updated thinking there.
Patrick Gelsinger
Yes. We described early on, back in April, May, we described the swoosh view of the cycle. That still is our perspective. Q2, Q3 being the worse, some level of recovery in Q4, more in the first half of next year, but it's not until second half of next year that things start to feel normal.
Now every quarter, we expect things to get incrementally better, but it's not, boom, things are going to pop back. We've never believed in a U., we've never believed in an L-shaped recovery. It's going to be more gradual. Now inside of that, there's lots of to and fro, right, and hey, we would have liked to see more on-premise transformational. But people can't get access to the data centers. They're rushing to some of their cloud offerings for workforce anywhere, to be expected.
Now we are feeling the pipeline stabilizing for these projects, but they're still hard, Karl. Budgets are being scrutinized aggressively, a lot of uncertainty in the marketplace. But hey, a few vaccine announcements and those things, a little bit more optimism in the customers, but I don't think it fundamentally is going to change that cycle that we've laid out, that we think still persist through the second half of next year.
Against that, we feel very good about our business. The customer relationships are more strategic than ever for us. The other thing that I've described is wherever the economy is, IT is better. And wherever the IT is, software is better. And I think that ranking continues to be the case as we go through the cycle next year.
Karl Keirstead
That makes sense. And maybe just to finish there. I know we're up against time. Pat, is there -- I know we covered a lot of ground, probably hit on most of the key points, but is there anything you'd love to leave myself and the group with -- as we wrap up here today?
Patrick Gelsinger
Well, overall, at the highest level, we are out to be the most trusted partner for our customers' digital transformation. And we just feel super good about -- that our strategy is increasingly aligned with where they need to go, these new capabilities around developer, around security, new segments like telco as we've talked about. But the underlying resilience of the business, when we're in, we're here a long time as well. And I think that resilience gives us greater confidence, and I think the market might give us credit for sometimes that, yes, these guys are building a really, really phenomenal business for the long term.
And even as we lean into the subscription and SaaS smile that has some negative financials, it's building a better long-term business with higher-value relationships with customers and greater monetization capacity. So overall, we feel super good.
Karl Keirstead
Excellent. Well, Pat and Paul, thanks so much for keynoting our UBS TMT conference. We really appreciate it. And if I don't talk to you, have a fantastic coming holiday.
Patrick Gelsinger
We wish you a merry Christmas and a happy New Year.
Karl Keirstead
Thank you both.
Patrick Gelsinger
Thank you, Karl.
Karl Keirstead
Okay. Bye, bye.
